CDD and EDD are two important terms used in the world of Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. While both of these terms refer to customer due diligence, they are different in their approach and level of scrutiny.
Customer Due Diligence (CDD) is the process of verifying the identity of a customer and assessing the risk associated with a business relationship. It is a mandatory requirement for financial institutions and other regulated entities to prevent money laundering and terrorist financing. CDD involves collecting customer information, verifying the customer’s identity, and assessing the customer’s risk profile. CDD is typically required for all customers, regardless of the level of risk.
Enhanced Due Diligence (EDD) is a higher level of due diligence that goes beyond the standard CDD process. EDD is typically conducted when the risk of money laundering or terrorist financing is deemed to be higher. EDD involves a more comprehensive analysis of the customer’s profile, business activities, and beneficial ownership. It also involves the use of additional sources of information, such as public records, media reports, and third-party data providers.
The key difference between CDD and EDD is the level of scrutiny and the depth of analysis. CDD is a standard process that is applied to all customers, while EDD is a more intensive process that is reserved for high-risk customers. The decision to apply EDD is based on a risk-based approach, which considers factors such as the customer’s country of origin, nature of the business relationship, and other relevant risk factors.
Another difference between CDD and EDD is the level of documentation required. CDD requires basic customer information, such as name, address, and date of birth, and may also require proof of identity and address. EDD requires more detailed documentation, such as business registration documents, financial statements, and ownership structures.
In terms of the timeline for completing due diligence, CDD can typically be completed within a few hours or days, depending on the complexity of the customer profile. EDD, on the other hand, can take several weeks or even months to complete, as it involves a more comprehensive analysis of the customer’s profile and activities.
EDD is typically applied in cases where there is a higher risk of money laundering or terrorist financing. This includes customers who are politically exposed persons (PEPs), high-net-worth individuals, or customers from high-risk jurisdictions. EDD may also be required for customers who are engaged in high-risk activities, such as money services businesses, virtual currency exchanges, or correspondent banking relationships.
Conclusion
While CDD and EDD are both important components of AML and KYC compliance, they differ in their approach and level of scrutiny. CDD is a standard process that is applied to all customers, while EDD is a more intensive process that is reserved for high-risk customers. The decision to apply EDD is based on a risk-based approach, which considers factors such as the customer’s country of origin, nature of the business relationship, and other relevant risk factors.
The level of documentation required and the timeline for completing due diligence also differ between CDD and EDD. Understanding the difference between CDD and EDD is essential for financial institutions and other regulated entities to effectively manage their AML and KYC compliance obligations.
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